Commercial Real Estate Loan Tip #1

I plan to offer a few tips on securing commercial real estate loans over the next few months. Hopefully, this will provide our commercial real estate investors some handy tips for obtaining a commercial real estate loan.

Commercial real estate tip number 1 – Be honest. This is, by far, the most important tip I could ever provide to a commercial borrower. I cannot count the number of times a commercial borrower has misrepresented some element of a transaction. For example, misrepresenting the gross rental income of a property or overstating their personal income is a huge mistake. Please understand, every commercial financing transaction has warts. It is the job of your commercial broker to get you financing – in spite of the warts and problems. As a company, we do not work on a financing project that does not have a reasonable prospect of securing the financing.

We recently had a client that misrepresented their deal. As always, both we and the lender discovered the client’s misrepresentation during the closing process. After all, closing is a process of discovery. In reality, we could have gotten the deal funded regardless of the borrower’s hidden problem. However, because the trust was lowered by discovering the borrower’s misrepresentation, the lender decided to change the loan amount and other terms. The lender explained this to us in a telephone call. At this point, we had a difficult time trying to persuade the lender to fund the transaction. Ultimately, we managed to negotiate good terms (in fact excellent terms), but our client was limited to a reduced loan amount – all because of a lie. In addition, the loan took much longer to fund nearly costing the client their property due to an impending balloon payment.

The moral of the story is … don’t lie! Share your difficulties and issues with your loan officer with complete integrity. Have the same confidence that you have with your commercial properties – regardless of the warts. The process will have a much greater likelihood of success. We appreciate honesty.

In closing, remember … commercial real estate loans are a unique area of specialization. Traditional loan officers are usually not experienced or trained to provide commercial services. More importantly, traditional loan officers usually lack the relationships with commercial lenders that are required to successfully finance commercial properties. We recommend that you seek the advise of a skilled commercial loan officer who is connected to numerous commercial lenders and has the experience to get your commercial project funded.